LIC will come out with its IPO on May 4. The insurance giant has set a price band in the middle from 902 949 per equity share.
DIPAM Secretary Tuhin Kanta Pandey said that the share sale of LIC has been cut 20,557 crore to “right sizing” so that there is no rush of capital inflows in the market, and stressed that the issue is value incremental for all, especially retail investors.
He further said that it will be called LIC 3.0 phase.
While announcing the LIC share sale through OFS route, Pandey tried to justify the low valuation (approx. 6 lakh crore) country’s largest financial sector entity and largest market investor and resultant issue proceeds.
The 10 investment bankers and appraisers did their best to “an apples-to-oranges comparison” because there was no benchmark to look at, Pandey said.
However, he could not answer why the issue is being raised when the market is not holding up and foreign investors have been in quit mode for months, along with comfortable government finances, “to the government for infrastructure”. Funds are required for investment in and capital receipts have only been accounted for and not yet paid”.
government is taking 20,557 crore by completely diluting its 3.5 per cent stake through an offer for sale, and will be the largest ever initial public offering.
In February, the government had planned to sell 5 per cent stake at an estimated valuation of approx. 10 lakh crores and to collect approx. 60,000 crores. But the current valuation is only 1.1x its embedded value and the average value of the last four listings of private life insurance companies was 3.41x, as per LIC’s own admission in DRHP.
“LIC share sale is of the right size considering the current market environment. This will not exclude capital flows given the existing constraints,” Pandey told reporters.
Stating that the IPO gives an opportunity to all Indians to participate in wealth creation through the country’s most valuable corporation, he said the government wants LIC to become a long-term value maker in the equity market.
He said the share sale, which was earlier planned for the last month of FY22, went ahead in this financial year due to volatile market conditions induced by geopolitical events.
“The decision to list now has taken into account a combination of several factors including market demand, a solid anchor book that stabilizes market conditions, minimizes volatility, domestic inflows and financial performance of the corporation,” he said, but was quick to request i-bankers “to ensure that the issue is resolved”.
According to Pandey, given the many concerns in other markets, the market is undoubtedly benefiting from a strong structural tailwind.
The market has recovered from a temporary setback due to global geopolitical events (Ukraine invasion) and volatility has come down significantly from its previous peak. While global sentiment is weak, our market remains resilient on the back of continued strong domestic growth.
Speaking on LIC’s valuation, he said the numbers floating around in the market were “estimated” and the government has not done any such exercise.
“The evaluation process itself is essentially an exploration process. Because you don’t know what we are comparing it with? Is LIC equal to HDFC Life or SBI Life or some Chinese counterparts or is it similar to Prudential or AIA?” He asked and said that 10 i-bankers and appraisers tried their best to reach this valuation and price range. 902-949 per share.
Expressing hope that the issue would be well received by the market, Pandey claimed that there is a fair amount of domestic demand for the issue, but soon admitted that the demand from overseas players is slightly lower and Hoped that the i-Bankers would ensure that the issue is sailed through.
“One reason, we went down from 5 per cent to 3.5 per cent equity dilution due to constrained environment”, he said and expressed confidence of closing it given the optimal demand scenario that exists for the IPO. There is an anchor book to support this.
He clarified that the government is not planning to bring another FPO within the next one year.
The sale of shares is done through an offer-for-sale (OFS) of 22.13 crore equity shares. These shares will be listed on May 17.
The offer includes reservation for eligible employees and eligible policyholders. Retail investors and eligible employees will get discount 45 per equity share and policyholders will get a discount 60 per equity share.
LIC was formed on September 1, 1956 by the merger and nationalization of 245 private life insurance companies, with an initial capital of Rs. 50 million.
Its personalized product portfolio includes 32 individual products (16 participating products and 16 non-participating products) and seven individual optional rider benefits. The group product portfolio of the insurer comprises 11 products of the group.
As of December 2021, LIC had a market share of 61.6 per cent in terms of premium or GWP, 61.4 per cent in terms of new business premiums, 71.8 per cent in terms of number of individual policies issued and 88.8 per cent. Number of group policies issued.
As all media queries were about low valuations and timing of the share sale, the press conference was hastily called off and i-bankers did not raise any questions.
Sanjay Chatterjee, President and CEO, Goldman Sachs Security India, when contacted on the spot, declined to answer any questions and instead asked PTI reporters to get in touch with the DIPAM secretary.
The other nine investment bankers handling the issue are Kotak Mahindra Capital, Axis Capital, BofA Securities India, Citigroup Global Markets India, ICICI Securities, JM Financial, JP Morgan India, Nomura Financial Advisory & Securities India and SBI Capital Markets.
with agency input